Check Processing

Especially with people trying to cut back on credit card use, paper checks are still very much in play in the United States. Although electronic check processing has taken off (see below), there are still merchants who accept paper checks and hold onto them, processing them in their paper form.

To process a paper check, the merchant goes through several steps. First, the cashier reviews the check, making sure the payment amount is accurate and that customer information (usually including name, street address, and phone number) is complete and up-to-date. Additional procedures, such as scanning a store-issued check cashing card or presenting a valid in-state driver’s license, the number of which is recorded on the check, are also frequent, although when merchant and customer know each other well, this verification may be bypassed.

Either at the time of the transaction or later, the check is stamped—by hand or by machine—with the store’s deposit information. The merchant takes all the checks collected for the day to its bank and deposits them. For customers who share the merchant’s choice of banks, checks are processed internally. In cases in which customers have a different bank, the merchant’s bank sends the check with a request for verification and payment to an intermediary institution that identifies the paying bank using the routing number, and settles the check by debiting the customer’s bank and crediting the merchant’s bank. The paying bank receives the notification and debits the customer’s account.

Processing of Paper Checks Electronically

The newer approach to check processing acts quickly to take the paper check out of the picture so that processing can proceed electronically, greatly reducing the need for manual handling of paper by the merchant and by the merchant’s bank. If the choice is made to use a check processing system that guarantees funds, the system can also reduce the risk of accepting checks.

Some systems are equipped to handle not only checks with the customer present, but also checks without the check writer, as in mail-in catalog orders. Systems may also be equipped to deal with a variety of checks, including business checks, personal checks, travelers checks, and money orders. The check processing service and the equipment used is likely to be particular to which of these scenarios the merchant faces.

Check conversion services may be limited to converting the check to an electronic form, or may also guarantee funding. The authorization process in the two cases (when funding is guaranteed and when it isn’t guaranteed) is different. When funding is not guaranteed, the authorization is limited to a verification that the check writer has no problems in his or her history. At the end of the transaction, the check is returned to the customer for his or her records, and the rest of the processing proceeds using the newly made electronic form of the check.